Cost-of-living index

A cost-of-living index is a theoretical

The CPI frequently is called a cost-of-living index, but it differs in important ways from a complete cost-of-living measure. BLS has for some time used a cost-of-living framework in making practical decisions about questions that arise in constructing the CPI. A cost-of-living index is a conceptual measurement goal, however, not a straightforward alternative to the CPI. A cost-of-living index would measure changes over time in the amount that consumers need to spend to reach a certain utility level or

public goods, such as safety and education, and other broad concerns, such as health, water quality, and crime that would constitute a complete cost-of-living framework.^[2]

The basis for the theory behind the cost-of-living index is attributed to Russian economist A. A. Konüs.[3] The theory assumes that consumers are optimizers and get as much utility as possible from the money that they have to spend. These assumptions can be shown to lead to a "consumer's cost function", C(u,p), the cost of achieving utility level u given a set of prices p.^[4] Assuming that the cost function holds across time (i.e., people get the same amount of utility from one set of purchases in year as they would have buying the same set in a different year) leads to a "true cost of living index". The general form for Konüs's true cost-of-living index compares the consumer's cost function given the prices in one year with the consumer's cost function given the prices in a different year:

${\displaystyle P_{K}(p^{0},p^{1},u)={\frac {C(u,p^{1})}{C(u,p^{0})}}}$

Since u can be defined as the utility received from a set of goods measured in quantity, q, u can be replaced with f(q) to produce a version of the true cost of living index that is based on price and quantities like most other price indices:

${\displaystyle P_{K}(p^{0},p^{1},q)={\frac {C(f(q),p^{1})}{C(f(q),p^{0})}}}$^[4]

In simpler terms, the true cost-of-living index is the cost of achieving a certain level of utility (or standard of living) in one year relative to the cost of achieving the same level the next year.

Utility is not directly measurable, so the true cost of living index serves only as a theoretical ideal, not a practical price index formula. However, more practical formulas can be evaluated based on their relationship to the true cost of living index. One of the most commonly used formulas for consumer price indices, the

• ACCRA Cost of Living Index
• Bureau of Labor Statistics
• Consumer price index
• Cost-of-living crisis
• Median house price to income ratio
• Housing affordability index
• Inflation
• Inflation hedge

• Cost-of-living index in glossary,
  U.S. Bureau of Labor Statistics Division of Information Services, [4], [5]
  ,
• Yaşam Maliyetleri